Term Assurance explained
Term Assurance is life insurance in it’s cheapest form. The sum assured under the policy is only paid out if death occurs within a specified term.
If the life assured survives until the end of the term, the policy will expire and there will be no monies payable.
There are several types of Term Assurance. The following list is not exhaustive, but it covers the main types:
The amount payable on death remains unchanged throughout the term of the policy.
This is generally the cheapest form of life cover. The sum assured decreases each year that the life assured lives, usually on a fixed scale, until at the end of the term the amount is zero.
This type of cover is commonly used with repayment mortgages, so that in the event of death before the end of the mortgage, the capital balance outstanding can be repaid.
Similar to convertible term assurance, except that the option is to exchange the original term assurance for another term assurance, at the end of the term. Again the main benefit here is guaranteed insurability. Renewable and Convertible Term Assurance are sometimes combined in the same policy.
Term Assurance where the value of the Sum Assured is linked to increases in an index - usually the Retail Prices Index (RPI). The premium for this kind of policy will usually increase at a set amount.
Upon the death of the life assured within the term, this type of cover pays regular instalments of capital for the balance of the term of the policy. It is intended to provide an income for a family on the death of the breadwinner. It may be possible to commute the income payments for a lump sum instead.
The sum assured is still only payable on death within the specified term. The premium payable buys units and each month enough units are cancelled to pay for that month's life risk. If the units over-perform, then the value of the units left at the expiry date would be payable as cash to the policyholder. If the units under-perform then either the premiums may be increased or the sum assured reduced.
If you’re not sure what kind of policy you have you should check your policy documents or contact us to confirm.
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